Many Real Estate Investors start out rehabbing properties to resell for a profit. Many of these investors eventually migrate to wholesaling or become landlords, but some become experts and just keep on rehabbing. Most rehabbers build a system and once they have it fine tuned, don’t deviate from that system. If they build a system rehabbing rental properties for landlords or for first time home buyers, then that is what they always do, because it works for them.

However, a few rehabbers make the leap from rehabbing properties in low to middle income neighborhoods to rehabbing properties in upper middle class to affluent neighborhoods. But very few move beyond that and take the step to rehabbing extremely expensive houses. And even fewer are true visionaries.

A close friend of mine, which many of you already know, Robyn Thompson, the Queen of Rehabs started out rehabbing multi-families in firs time home buyer neighborhoods in Connecticut. She then took a huge leap in faith in herself and her abilities and now rehabs multi-million dollar mansions in Florida. That is something that I hear a lot of people say is too big of a rehab, and to those people I say, you are just not thinking big enough.  More...

Look at the drop starting on May 1st. This graph should be all you need to realize that the first time home buyers tax credit drove a lot of sales at the moment, but they would be sales that were pulled forward. In other words, if the tax credit wasn’t there, the sales would probably still have happened, but they would have been spread out over time rather than pushed back into April.

First of all, the banks are short staffed, so they can’t file NOD (Notice of Defaults) and complete the foreclosure process as fast as new borrowers are falling into default. The average borrower in foreclosure has been delinquent for 438 days before actually being evicted, up from 251 days in January 2008, according to LPS Applied Analytics. That is the first part to Shadow Inventory.

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This has also created other problems. I had a closing that kept getting pushed back because FHA hadn’t review the file to release the funds because they were so backed up. We finally closed last week and from talking to the buyers at the closing, they just wanted to close before they lost the credit, but it wouldn’t have stopped them from buying, they just bought now rather then this summer when they originally planned on moving.

You may have heard this term thrown around lately, but what the heck is it? Shadow Inventory is basically inventory that hasn’t made it to the market yet. There are several components to Shadow Inventory.

First of all, the banks are short staffed, so they can’t file NOD (Notice of Defaults) and complete the foreclosure process as fast as new borrowers are falling into default. The average borrower in foreclosure has been delinquent for 438 days before actually being evicted, up from 251 days in January 2008, according to LPS Applied Analytics. That is the first part to “Shadow Inventory”.

Secondly, a lot of lenders that are taking properties back through the foreclosure process are supposedly holding on to them through holding companies and not releasing them to the market. Their reasoning is actually a valid one. They are afraid that if they release too much inventory to soon, housing values could plummet. And I agree with that assumption, but I am one who prefers to rip the band aid off quickly.

I have heard and read, but never confirmed that there is an estimated 3-7 million units in Shadow Inventory just lingering out there. My question is, how long can they hold into all that inventory.

Another component that I think needs to be added to the overall Shadow Inventory count is all the properties out there that the banks are in the midst of negotiating loan modifications. Half of all loan modifications have defaulted so far. If one was to think about it, shouldn’t those properties also be considered Shadow Inventory? I know what some of you are thinking; “But Mike, they are not in foreclosure yet”. While that may be true, I would say that if it wasn’t for the current administration giving the lenders an incentive to work out loan modifications, that they would be, and let’s face it, statistically, half of them will be shortly.

So far all I have mentioned is residential properties, but what about commercial. Office vacancy rate is currently falling as we speak. According to CoStar GROUP there is an additional 420 million sq ft vacant office space that is currently being leased, but not occupied. The reason for this is all the layoffs from large corporations that are still paying on the leases, but laid all the employees off that used to occupy those desks. What will happen when those leases expire?